Cryptocurrencies are a relatively new development. However, they are changing the financial landscape in many ways. Decentralized currencies have been gaining in popularity, so it’s no surprise that there are now credit cards that allow transactions and rewards in Bitcoin, which is the oldest, most well-known, and least volatile of the options available in the crypto space.
What are crypto credit and debit cards?
Both crypto credit and debit cards are available, and, just like any other type of card, a crypto credit card or debit card allows the owner to make purchases. Unlike normal cards, however, the user can pay for purchases using cryptocurrency and also receive crypto rewards. There are several variants of these types of cards.
Crypto rewards cards
A crypto rewards credit card uses either the Visa or Mastercard payment network and works the same as these cards. You can make purchases from any merchant who would accept one of these cards. Every time you use your crypto rewards card, however, you will be rewarded with Bitcoin or another cryptocurrency.
SoFi was the first to provide this type of rewards card. It has no annual fees, provides 2% cashback, and you can redeem this directly into crypto via a SoFi investment account.
Crypto Debit Cards
A crypto debit card allows those who hold cryptocurrencies to quickly access their funds when they want to use them to make a purchase. Prior to the advent of these vehicles, in order for someone to use their crypto for ordinary transactions such as buying groceries, they would first need to sell their crypto on an exchange, wait until the funds were deposited into their bank, and then go to an ATM, use a debit card given by the bank, or write a check.
Obviously, this was an unwieldy way to manage funds.
With crypto debit cards, this is no longer an issue as a crypto debit card works just like a standard debit card but is backed by the owner’s crypto wallet instead of their bank account. Some of these debit cards also offer rewards in the form of cryptocurrencies.
Disadvantages to crypto cards
The issue with crypto credit cards is the same as with cryptocurrencies overall – even Bitcoin, the most stable of the coins, is very volatile. If you purchase something today for a certain amount of cryptocurrency, there is no guarantee the price of the coin won’t rise dramatically, which will end up with you losing out on those gains if you’d just treated your crypto like an investment.
On the flip side, if your cryptocurrencies drop precipitously, which happens frequently in this market, then you may not be able to purchase items you were trying to allocate funds for.
Finally, you have to consider the tax ramifications whenever you buy or sell crypto.
So, what should you do?
If you are tempted to have a crypto credit card, perhaps stick with a crypto rewards card such as the one provided by SoFi, which allows you to make purchases using fiat currency while accepting rewards in crypto. This option actually gives you the best of both worlds, allowing a stable platform for normal transactions while also letting you add to your investment portfolio.